Rating companies face scrutiny
IAB asks regulator to improve transparency in credit rating process.
By : DC Correspondent
Update: 2015-12-25 07:17 GMT
MUMBAI: The international advisory board (IAB) of the Securities and Exchange Board of India (SEBI), has advised the capital markets regulator to work towards improving the rating processes followed by credit rating agencies (CRA), enhance transparency and remove any conflict of interest. The international advisory board of Sebi has suggested that the disclosures regarding the ratings of an issuer by CRAs should also include the rating transition of the issuer in the past as a track record of the rated issuer and also to reflect on the consistency of ratings by the CRAs.
On the withdrawal or suspension of rating by a rating agency in cases where information required for ratings is not forthcoming from the issuer, the committee said that the rating agency should suspend the rating with adequate reasons as a first step, which could be later followed up with withdrawal of ratings where it is necessary. IAB also stated that rating is a public good and therefore the independence and credibility of CRA’s in this context assumes special significance.
The Sebi move comes after JP Morgan Mutual Fund witnessed massive redemption pressure in two of its debt schemes, which had a significantly higher exposure to the Amtek Auto’s debt. One of the rating agencies, which had given a higher grade to Amtek Auto’s debt suddenly withdrew its rating without any proper explanation.
“What we started looking at was, why is it that in certain cases while the papers were being rated as investment grade, suddenly the rating was suspended? There may be a genuine reason. I don’t suspect anything but then that has to be explained to the investors and public at large. Our feeling was that was not being done,” Sebi chairman U.K. Sinha had said at a meeting.
Download the all new Deccan Chronicle app for Android and iOS to stay up-to-date with latest headlines and news stories in politics, entertainment, sports, technology, business and much more from India and around the world.